...We all remember how “four” became “one” in 2016.... Will the same happen this year? I don’t think so; it is hard to see the Fed on pause for another twelve months.... Still, the broader point remains true that while further declines in unemployment will pressure the Fed to hiking rates more aggressively, low inflation like seen in November will temper that response. In addition, policy going forward depends on the relative tightness of financial markets in general, and the dollar in particular. And the dollar has been on a tear.... Some demand will be offshored as the rising dollar prompts the trade deficit to widen. Consequently, the Fed needs to be wary of feedback effects....

Bottom Line: The economic situation on the ground is very different from December of last year. Whereas the decision to raise rates at that time looked ill-advised, this latest action appears more appropriate given the likely medium-term path of the US economy. Assuming the US economy is near full employment, that path likely contains enough upward pressure on activity to justify more than one more rate increase in 2017. Three I think is more likely than one...